American Express Stock Still Looks Attractive Despite Soaring 29% This Year
Market valuation multiples are elevated. The S&P 500 and Nasdaq 100 are currently trading at price-to-earnings ratios of about 23.2 and 29.5, respectively. That's up from approximately the S&P 500's multiple of approximately 18.4 and the Nasdaq 100's of 26.0 at this time last year. While this multiple expansion has fueled a rewarding run-up in stocks for investors, it's left them with fewer good options for new capital.
But a close look reveals that, even in this market, there are still some investment ideas likely to do quite well over the long term from here. One attractive stock that also has a fast-growing dividend worth considering today is integrated payments company American Express (NYSE: AXP). Shares still trade at a reasonably priced valuation, and the company's dividend is growing at a double-digit rate in the high teens.
A growth stock at a fair valuation
There's a lot to like about American Express stock, starting with its growth profile.
The company's revenue rose 11% year over year in its first quarter and earnings per share soared 39%. Even more, management said in its first-quarter update that it expects full-year revenue to grow at a rate of between 9% to 11%, with earnings per share rising about 13% to 17%.
The integrated payments company, which largely caters to the premium segment of the credit card industry, has impressive momentum in its business.
"We continued to drive strong customer engagement, and demand for our premium products remained robust," said American Express CEO Stephen Squeri in the company's first-quarter earnings release. "We added 12.2 million new proprietary cards in the year, bringing the total number of cards-in-force issued on our global network to over 140 million."
Equally as important, American Express emphasized that its credit metrics "remained strong" during the quarter. Write-off and delinquency rates, management explained, continue to track below pre-pandemic levels.
Rapid dividend growth
Making the stock even more attractive is its dividend. Management announced earlier this year that it was raising its quarterly dividend by 17% to $0.70. This comes out to $2.80 annually, giving American Express a dividend yield of about 1.2%.
The company's most recent increase in its dividend puts the spotlight on the payout's recent impressive track record of growth. The company has increased its dividend at rates between 17% and 21% each year since 2022. Further, though American Express did pause its dividend increases during the COVID-19 pandemic years, it notably never put the dividend payment itself on hold. The company, therefore, boasts a long track record of consecutive dividend payments -- going all the way back to 1985.
Looking ahead, more dividend growth from American Express is almost inevitable. Not only is the underlying business growing nicely but the company has an extremely low payout ratio. Paying out just 20% of its earnings in dividend payments, there is significant room for dividend growth in the years ahead.
Overall, American Express looks like a very attractive long-term investment. Of course, there are always risks. For instance, American Express has a liability-sensitive business model since it provides the capital for its credit card users. The stock, therefore, could take a hit during a recession if it negatively impacts the spending and credit quality of its customers. For these reasons, it would be wise to keep any purchase of the stock small as a percentage of an investor's total portfolio.
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American Express is an advertising partner of The Ascent, a Motley Fool company. Daniel Sparks has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
